India’s penchant for gold jewellery does not seem to be fading away any time soon, despite the fact that the Indian government seems intent on curbing sales of the precious metal.

Despite constantly rising prices, the consumption of the yellow metal has been steady. With the wedding season in full swing in India, there is no slump in the sales of gold.

With the rate of pure gold shooting up to $608.97 (Rs 33,300) per 10 gram for 22 karat gold, one would have rightly presumed that gold jewellery is well out of the reach of a majority of people.

Not so. In the quarter ended September 2012, Indians made jewellery purchases worth $7.2 billion (Rs 395 billion). In contrast, gold exchange traded funds (ETFs) garnered just $91 million (Rs 5 billion) of inflows.

The wedding season, which extends well into the new year, is expected to ensure even better sales for gold retailers.

Anil Talwar of the Gems and Jewellery Committee has noted that there has been a considerable growth in the demand for gold in comparison to the past years.

“The cash flow in Indian society has increased at a pace that is certainly greater than the jump in the price of gold. Money, today, is not concentrated in the hands of a few as it was earlier. The disposable income of a majority of the Indian population has increased substantially,” he added.

Stating that gold remains central in the Indian social set-up, Talwar added that celebrating an Indian wedding without the all-too important jewellery is almost a sacrilege.

“The wedding is the most important day in anyone’s life, especially so for the bride. Decking up a bride with ornate and auspicious jewellery has been a custom for many centuries. Weddings are sacred and hence great importance is given to the jewellery worn by the bride. Gold jewellery is chosen to strengthen and signify the sanctity of the bond,” he said.

Jewellery worn by Indian brides are largely similar, though there are a few regional and cultural differences. Moreover, recycled gold has also entered the marriage market.

In the first three quarters of 2012, the country recycled 89 tonnes of gold as against 36 tonnes in the same period last year. Bullion houses said a large portion of the recycled gold had come in from farmers who had offloaded it to meet rising input costs.

“With gold prices going through the roof, consumers are trading old jewellery for new,” said Manubhai Shroff, bullion trailer. He added that 70% of India’s gold demand comes from rural buyers.

An official at Mumbai’s famed Zaveri Bazar’s Tribhovandas Bhimji Zaveri said that an increase in footfalls was noticed post Diwali, with jewellery sales volume showing significant growth.

“The jewellery demand has been growing, which indicates that the wedding shopping started in right earner close to Diwali itself. This year, it is a long wedding season and we do believe that sales will pick up steam in the next few weeks,” he added.

Gold ETFs

Global indices player, S&P Dow Jones Indices has noted that gold holding under gold ETFs in India over the past four quarters stood at 165 tonnes.

“We see significant investor interest coming up for gold ETFs in India. Demand for gold varies by region. In India, gold demand has increased from 46% to 55% of world demand,” said Jodie Gunzberg, director, commodity indices, S&P Dow Jones Indices.

As per data compiled by the Association of Mutual Funds in India, fund inflows in gold ETFs during the last 3 months were recorded at $91 million (Rs 5 billion).

While the ETF market in India has grown by about 87% since September 2009, the number of investors has shot up by 71% during the same period. There are about 34 ETFs in India.

Investors also appear to be trotting back into the bullion market with a $18.28 (Rs 1,000) drop in gold prices after the rupee gained against the dollar recently.

Bullion retailers said there was a 5%-10% outflow from gold ETFs and e-gold products when the metal touched $603.45 (Rs 33,000) per 10 gram in the third week of November, when the rupee weakened against the dollar.

Jewellers who had a short position are buying aggressively for the wedding season, said Prithviraj Kothari, past president of Bombay Bullion Association.